Canada's East Coast Provinces Pursue Interest in Franchise Law

At a time of year when many Canadians and Americans alike are considering a summer vacation to experience all that Canada's Atlantic coast has to offer, legislators in Prince Edward Island and New Brunswick, two of Canada's maritime provinces, have been setting their minds to franchising. After some unexplained delay, Prince Edward Island's Franchises Act (the "PEI Act") was finally passed into law on June 7, 2005. It came into force on July 1, 2006, with the exception of the disclosure obligations in the statute, which will become effective on January 1, 2007. Not far behind is the province of New Brunswick, whose government introduced the Franchises Act (the "NB Bill") on December 7, 2005. The NB Bill passed its first legislative hurdle that same day, and has now been referred to a legislative committee to allow for consultation with New Brunswick's business community. That consultation process could take months, if not years to complete, depending on the legislative agenda and priorities of the New Brunswick government.

The PEI Act is substantially similar to Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 (the "Ontario Act") and Alberta's Franchises Act (the "Alberta Act"). At the core of all of these statutes are three key principles:

1. a duty of fair dealing;
2. disclosure obligations targeted at franchisors; and
3. the unrestricted right of franchisees to associate and organize.

While under the PEI Act, the Ontario Act and the Alberta Act, the duty of fair dealing is a mutual obligation between franchisors and franchisees, the other two principles are focused on protecting the interests of franchisees. To that end, franchisors are required to provide prospective franchisees with a "disclosure document" containing all material facts, financial statements, copies of all agreements to be signed and certain prescribed statements. Details as to the disclosure obligations are set out in the regulations to the legislation and while regulations under the PEI, Ontario and Alberta legislation are all similar, the PEI legislators have selected certain regulations from each of the Ontario Act and the Alberta Act, resulting in a set of regulations under the PEI Act that is unique to that province.

• Wrap-Around Document - The PEI regulations include a provision similar to Alberta's regulations that permit a franchisor's use of a 'wrap-around' document, which provides supplemental information to a disclosure document prepared in accordance with the laws of another jurisdiction that has franchise legislation in place. Ontario does not explicitly permit use of a 'wrap-around' document.
• Financial Statements - Similar to the Ontario regulations, the PEI regulations include the requirement that, in order for franchisors to be exempt from having to include their financial statements in their disclosure documents, they must not have had any judgment, order or award made in Canada against them in the five years preceding the date of the disclosure document relating to fraud, unfair or deceptive practices, or a law regulating franchises. Alberta's requirements are less onerous to franchisors.
• Substantial Compliance - For the purpose of determining whether a franchisee may rescind a franchise agreement, the PEI regulations include a section similar to an Alberta provision that makes substantial compliance with the disclosure document requirements sufficient. Ontario has no such provision.

The NB Bill is based on the Ontario, Alberta and PEI legislation and thus is centered around the three key principles listed above. However, a notable difference between the NB Bill and the other three provincial franchise statutes in Canada relates to dispute resolution. According to the provision in the NB Bill relating to dispute resolution, any party to a franchise agreement who has a dispute with one or more of the other parties to the agreement may deliver a notice of dispute to the other party. Within 15 days, the parties shall attempt to resolve the dispute. If the dispute is not resolved, either of the parties may deliver a notice to mediate. An agreement to mediate and the costs incurred at the mediation may be disclosed to a court, tribunal or arbitrator if the mediation is unsuccessful, which, notably, may affect parties' costs at trial.

As the NB Bill is still in its formative stage, the regulations have not yet been drafted for public review, and it is thus difficult to predict the details of the legislation as a whole. However, the legislation as it currently stands suggests that, if passed into law, it will be comparable to the legislation already in place in Alberta, Ontario and PEI.

A full version of the PEI Act is available online at the following internet address: http://www.assembly.pe.ca/bills/pdf_chapter/62/2/chapter-36.pdf

A full version of the NB Bill is available online at the following internet address: http://www.gnb.ca/legis/bill/pdf/55/3/Bill-06.pdf

Lawrence M. Weinberg is a partner, and Jayne Westlake is an associate, of Cassels Brock & Blackwell LLP, one of Canada's leading law firms in the area of franchise and distribution law. Mr. Weinberg is the chair of the Franchise Law Practice Group and may be reached at lweinberg@casselsbrock.com or (416) 860-2987.